Budget Day in the United Kingdom is always met with a mix of anticipation and apprehension. Whether it is the cost of petrol or personal tax allowances, everyone is affected by the Budget. This year’s budget is a significant one. The build-up in recent months has caused speculation that we are due to see the biggest shake-up in taxation in recent history.
While the thought of taxes going up can cause worries in the short term, it is important to consider how any of these changes could affect your financial position in the future and ultimately on your estate. In an ever-changing financial landscape, it is vital to have the right plans in place and to ensure that any provisions you have made previously, such as a will, are still fit to achieve the same purpose.
In this article, we will look at the key points raised in the budget which will have the most notable impact on estate and tax planning.
Inheritance Tax in itself has been largely left alone. The personal allowance will remain at £325,000 as has been the case since 2009. This means that the first £325,000 of your estate can pass free of Inheritance Tax. The Residence Nil Rate Band also remains the same at £175,000, meaning that if you are leaving property to children, a value of up to £175,000, depending on the property value, can be left free of Inheritance Tax.
While these nil rate bands remain at a combined £500,000 per person, the increase in value of assets means that it is expected that many estates will start to stray outside the tax-free allowance and will attract Inheritance Tax at 40%.
The first changes to any Inheritance Tax legislation appear with amendments to Business Property Relief and Agricultural Property Relief. There will be a £1,000,000 allowance which applies to qualifying business or agricultural property for 100% relief. Any qualifying property over £1,000,000 will attract a 50% relief. One very notable change to the relief is that now, for a married couple, any unused relief can be transferred to the surviving spouse or civil partner’s estate.
This means that while the freeze in the Nil Rate Bands could bring more estates into the Inheritance Tax thresholds, there is now the potential for a married couple could pass up to £3,000,000 between them should business or agricultural property relief apply.
It was also confirmed that measures set out in the 2024 budget regarding pensions will be brought into force. At present, the majority of pensions can be nominated and pass outside of the estate, meaning that unused pension benefits do not affect the estate value for Inheritance Tax purposes. From April 2027, changes will come into effect so that the unused benefit will form part of the estate. This could therefore bring an estate which would not have previously been subject to paying Inheritance Tax into scope for tax payable at 40%.
Estate planning is not just a task for the well-off. New tax rules, particularly those affecting pensions, will mean more and more people fall into the Inheritance Tax bracket, and poor planning could see estates that would have previously been unaffected attract Inheritance Tax at 40%.
While not directly making changes to Inheritance Tax, this budget does make changes that could affect your tax position. Whether that is the introduction of the £1,000,000 cap for business or agricultural property relief, or simply the freeze in the personal allowance, meaning that the value of your estate exceeds the nil rate band. Effective estate planning means that you can manage your affairs in the most tax-efficient way so that you are assured that when your estate passes on to your loved ones, they are protected as far as possible from a tax burden.
Here at O’Donnell Solicitors, we can help you make those plans with knowledge of the best options suited to your needs. Whether you have made a will previously or you are considering estate planning for the first time, we can tailor your plan to your requirements or review the plans you already have in place. If you would like to book an appointment to discuss your estate, please get in touch, and our private client team will be happy to discuss your circumstances with you and work towards creating a plan to give you peace of mind that your estate will be tax-efficient and reflect your wishes.
